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Paging economists and Canadians

The controversy over the new harmonized sales tax (HST) in Ontario and British Columbia (BC in particular) is heating up. I first heard of it when I was in Vancouver in late May and saw petitioners looking for signatures; it struck me as a sales tax increase, from what they said. I’ve been doing some digging, though, and it seems that an HST in the style of the ones already adopted in Atlantic Canada was introduced to the BC legislature in March. HST appears to be another name for a value-added tax (VAT), which already plagues much of Europe and has been discussed lately in the U.S. as well. The VAT is a particularly insidious tax because it hits every stage from production to point of sale and is built into prices in a way that U.S. sales taxes currently aren’t. In the case of BC, I take that CBC story I linked to above to indicate that there is currently a 5% general sales tax (GST) applied nationally in Canada as well as a 7% provincial sales tax (PST) applied in BC. The proposed HST would roll the taxes together, which really doesn’t seem like a big deal and is probably why supporters claim the HST would be revenue-neutral, but it does apply to a much wider range of goods and services than the old PST, I guess.

But I want to know is this: if the HST is going to hit a much wider range of goods and services than the old PST and the rates are staying the same, how can it be claimed to be revenue neutral? Will it only be revenue-neutral after the BC government mails out rebate checks to low income earners who would otherwise be victimized by a regressive sales tax? Furthermore, the timing of this move seems incredibly coincidental in that it comes just a few months after the wildly expensive and not altogether successful Vancouver 2010 games concluded.

So, Canadians and economists and Canadian economists, please enlighten me with comments or emails to help me understand this issue better.